The Impact of the Election on Industrial Real Estate
The Current Industrial Market
Over the past five to seven years, the industrial market in Atlanta has had explosive growth largely due to ecommerce. Its sustained low vacancies have been driven by stores like Walmart and Home Depot getting into distribution online and other omni channel distribution networks. Atlanta currently has 742 M SF of inventory and 22 M SF under construction, ranking top five for industrial space underway nationally. Absorption has been incredibly robust with no slowdown in sight. Rent growth continues to outperform the national benchmark with rental rates up more than 20% compared to what it was 3 to 4 years ago.
Biden's Presidency's Impact on CRE
Opportunity Zones: Opportunity Zones are made to encourage development and job creation in low-income communities. Developers and property owners have a tax incentive where they can defer or forgo paying capital gains taxes if they invest in one of the designated zones throughout the country. They can then forgo their entire capital gains taxes on the investment if it’s held for a minimum of 10 years. President Trump really pushed Opportunity Zones during his presidency, and we predict Biden will aim to increase its impact.
1031 Like-Kind Exchange: One active concern for manufacturers involves the 1031 Like-Kind Exchange. A 1031 Exchange allows investors selling a property to defer capital gains taxes if they put the money from the sale into another property. It’s no surprise that this exchange is wildly popular among investors. However, under Biden’s plan, its use would be limited to people pulling in less than $400,000 annually. Anything over $400,000 will have to take the active burden at the closing of the sale. That will impact how users continue to grow in the market and may impact their bottom line. It may also lead to inflation on pricing and effect how taxing properties are viewed in the future.
Atlanta benefits from its role as a regional and national distribution hub, the growing Port of Savannah, and strong local demographic growth. It will be interesting to see how industrial real estate will be impacted by the election in addition to increasing Opportunity Zones and changes to the 1031 Like-Kind Exchange. Atlanta's industrial market currently remains on solid footing, and continues to show signs of strength despite the economic impact of the coronavirus pandemic.
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